How toy companies are grappling with delivery delays this holiday
A shopper wearing a face mask due to the coronavirus disease (COVID-19) pandemic browses toys at a Target store in King of Prussia, Pa., November 20, 2020.
Mark Makela | Reuters
Even from the front porch of his home in Malibu, toy manager Isaac Larian can’t escape this holiday season’s biggest business challenge. He can see a long line of idling container ships in the Port of Los Angeles, about 70 miles away.
Larian, CEO of MGA Entertainment, said the crowded port has been a lingering sight off the California coast since at least May. As he tries to relax and watch the sunset it’s a constant reminder of the many toys that have yet to arrive. The delay in unloading ships could compromise parents’ ability to buy the toys in time to pack them up and tuck them under the Christmas tree. If they miss the opportunity, the toys could linger on the shelves with release stickers until the end of winter.
“I can see an ocean full of containers,” he said. “Ship after ship after ship filled with containers awaiting unloading.”
He said the company, the maker of LOL Surprise, Rainbow High and Little Tikes, currently has enough inventory to meet around 65% of its pending orders. He said MGA Entertainment is forecasting 50% sales growth this year, but now expects 18% to 20% growth. He did not share specific revenue figures as the company is a private company.
Larian is just one of many toy makers struggling with a massive bottleneck in the global transportation pipeline caused by the coronavirus pandemic and made worse by the Suez Canal blockage in March. Shipping containers that once cost $ 3,200 are now selling for north of $ 20,000, Larian said. And even when the containers are unloaded, there aren’t enough truckers to deliver these shipments.
Power outages in China, a resin shortage and higher labor costs have also strained the supply of goods and raised prices.
“It’s a really, really complex set of issues that has a ripple effect and I’m afraid this will continue for a long time,” Larian said.
No business is immune. The bigger ones have more resources. Home Depot and Costco have gone so far as to contract dedicated container ships to expedite their orders. Large companies also have the cash to place orders well in advance of when the items are needed. Hasbro and Mattel did not respond to a request for comment for this story, but executives stressed that large toy companies are better equipped to meet these challenges.
At a Goldman Sachs conference in late September, Hasbro CEO Brian Goldner said he “uses all kinds of tactics and techniques to make sure we get the product we need.” This includes almost double the number of ports it uses in the United States and the addition of a number of new ports in Asia, he said.
Hasbro expects some toys to be delayed, arriving at the start of the fourth quarter instead of the end of the third, but the toys will be on the shelves in time for peak shopping season, he said.
“We think we’ll have all the products, although we might like a few more products in some categories, but we’ll have the product for the holidays,” he said.
These products will be more expensive. At that same investor conference, Mattel CEO Ynon Kreiz said he was raising toy prices to cover higher costs, but didn’t expect this to dampen demand.
“We believe that the toy industry as a whole will remain a strategic category for retailers,” Kreiz said. “Items are not expensive. And parents will always prioritize spending for their children, especially when it comes to quality products and trusted brands.”
The NPD Group, a market researcher, estimates that overall vacation spending in November and December will increase 3% from last year and 5% if the season is extended to include October and early January. Meanwhile, consultants Bain and Deloitte each estimate that vacation sales will increase by at least 7% to around $ 800 billion.
Less variety and less supply
Industry analysts have said there is no must-have holiday toy this year. Instead, they predict that consumers will gravitate towards the top-rated items during the lockdown.
“There are a few characters [toys], with Batman, Grogu, Paw Patrol and Frozen there, “said Nikki Baird, vice president of retail innovation at Aptos, a retail technology company.” But more emphasis. [is] on sensory games like kinetic sand, water toys, Legos, restless toys. And also toys that promote the exploratory type of play. “
Parents, who are waiting to shop for sales in late November and December, will want to get their hands on their kids’ wish lists earlier this year.
“If your child has something to heart, go buy it now,” said Steve Pasierb, CEO of the Toy Association. “Do not wait.”
Last year, retailers encouraged shoppers to buy gifts early due to the pandemic. Amazon, Target, and Walmart, among others, launched holiday sales in October. But even then, the bulk of the sales took place in December. Although a small portion has shifted forward, according to NPD.
About 16% of fourth-quarter toy sales were in October, up 3% from 2019, NPD said. Rising toy sales in December 2020 accounted for 55% of total fourth quarter transport, down 3% from the previous year.
This 3% change means that around $ 400 million in toy sales were purchased earlier in the season last year, while the toy industry saw its sales reach $ 11.5 billion over the course of the year. of the holiday quarter.
To deal with tight stocks, retailers are relying more on fewer items, according to Pasierb. This was a strategy that was also used for back to school, and it will likely mean less choice for consumers.
LOL Surprise OMG House of Surprises playset from MGA Entertainment.
Toys that were popular during the pandemic can also be hard to find. Neil Saunders, managing director of GlobalData Retail, said he had noticed stockouts and less inventory of craft and “to do” toys that parents were using to entertain children. He also noticed gaps with restless toys, plush toys, and dolls.
Larian said for MGA, items like his LOL Surprise OMG House of Surprises playset – which is on Walmart’s best toy list – and the LOL Surprise Movie Magic Studios set – which is on Target’s list – will be more hard to find.
“The LOL house, this item costs over $ 200 and it’s big,” Larian said. “You can only put 150-200 in a container. You cannot transport it by air.”
On the flip side, he said, many blind LOL Surprise bags – wrapped packages with small collectible toys hidden inside – can fit inside a 40-foot container or be shipped on an airplane.
The company’s fashion dolls, which are labor-intensive to manufacture, will also be in short supply. Larian said the MGA’s average cost to produce a toy is up 22% from last year.
Larian said the supply chain has many broken links, not only in China but also in the United States.
MGA Entertainment owns Little Tikes, an Ohio-based toy company. He said the company’s wages have risen by 60% as it struggles to fill manufacturing jobs.
Walmart and Target are both hiring additional supply chain workers to keep goods flowing during the holidays and beyond. Walmart, which has approximately 1.6 million employees in the United States, is hire 20,000 people for roles such as order fillers and material handlers. Target, which has approximately 350,000 employees, hires 30,000 supply chain employees.
Target has said it will also put emphasis on its toy department this holiday season by roughly tripling the number of Disney stores inside Target locations and working with FAO Schwarz on a limited-time collection.
Higher labor and transportation costs will also have a ripple effect for customers. A recent report from Salesforce estimated that prices could go up by as much as 20% this holiday season.
“There will be deals, but stocks are limited and retailers won’t want to make massive deals on toys,” Saunders said. “It will be a more expensive vacation.”
A new report from the NPD Group shows that 29% of consumers in the United States plan to spend more on their vacation shopping this year compared to last year.
Although the prices may be higher this year, they will be presented as a discount, said Aptos’ Baird.
“Retailers know they are competing with other retailers for a limited share of consumers’ wallets – a one-time seasonal expense,” she said. “As retailers compete for that share of the spend, I expect there will always be promotions on offer, even when supply is limited. “
LOL Surprise toys on a shelf at Target.
If retailers don’t have the toys that buyers want, stores could miss sales in other categories of merchandise, Larian said, explaining that retailers often use toys as a “lead product” to attract customers. consumers.
“Toys are an emotional purchase,” he said. “Toys bring foot traffic to stores because as a mom or grandma or grandpa when you go to Target or Walmart or even go to Amazon to buy toys you end up putting more stuff than that. toy in the basket. “
Larian said retailers will take the brunt this holiday, if the merchandise is not on the shelves on time. Then, he said, toy companies will suffer in the following quarters as retailers try to sell the products in warehouses rather than place more orders.
“Christmas is December 25,” Larian said. “If we don’t put the merchandise on the shelves before that date, sales drop dramatically after that. These toys are already made. The hangover will go in January, February, March, April, if not more. The warehouses will be full of merchandise.”